Martha Stewart, J.C. Penney revise partnership agreement in Macy's dispute


By Karen Freifeld

NEW YORK, Oct 21 (Reuters) - J.C. Penney Co Inc andMartha Stewart Living Omnimedia on Monday announced arevised agreement that eliminates Stewart's products in homegoods categories to which rival Macy's Inc claimsexclusive rights.

The amended deal calls for the domestic doyenne's company todesign Martha Stewart-branded products for J.C. Penney in windowtreatment, holiday and other categories not claimed by Macy's.Penney also gave up its 17 percent stake in Martha Stewart'scompany.

Macy's sued Penney and Martha Stewart Living after the twoannounced a partnership in December 2011. Macy's said theagreement breached its contract with Martha Stewart thatincluded exclusive rights to Martha Stewart-branded cookware,bedding and bath products.

"It's a total victory for Macy's," attorney Ted Grossman,who represents Macy's, said of the revised agreement betweenPenney and Martha Stewart. "They obviously knew they had lostthe trial, just as we clearly believed that we had won."

Penney's stock hit a more than 30-year low on Monday,closing at $6.42 on the New York Stock Exchange after falling aslow as $6.27. An analyst had slashed her price target on sharesto one dollar, citing concern the retailer "may engage infinancial restructuring in 2014."

Former Penney Chief Executive Officer Ron Johnson viewedMartha Stewart as key to his vision for remaking the strugglingretailer. Johnson, who failed to win over shoppers andinvestors, was ousted in April.

"We are happy to be moving forward," Penney Chief ExecutiveMike Ullman said in Monday's statement announcing the revisedagreement.

Johnson, Martha Stewart and Macy's Chief Executive TerryLundgren all took turns on the witness stand during the trial inNew York state court.

Justice Jeffrey Oing, who presided over the trial, had set aFriday deadline for Penney and Stewart's licensing company tonegotiate changes to their agreement before he ruled, accordingto people familiar with the case.

Macy's still has claims for damages as a result of Penney'sinterference with Macy's contract and Martha Stewart's breach ofcontract, the department store said in a statement.

Macy's contract with Martha Stewart runs through 2018. Thecompany has said Martha Stewart is its No. 1 home brand.

A spokeswoman for Penney and a spokesman for Martha Stewartdeclined comment on any potential damages.

The amended contract runs through June 30, 2017, accordingto the announcement, shorter than the 10-year deal in theoriginal agreement. In addition, the statement said Penney willno longer own 11 million shares of Martha Stewart Living or haverepresentation on Martha Stewart Living's board of directors.

The original Martha Stewart Living-Penney deal was estimatedat over $200 million. The parties would not comment on the valueof the amended agreement.

Imperial Capital analyst Mary Ross Gilbert cut her one-yearprice target on the stock from $5 to $1.

Penney spokeswoman Kristin Hays said Penney expects to endthe year with more than $2 billion in liquidity. Last week, Haysdenied a market rumor that the chain had hired bankruptcycounsel.

Penney has been trying to lure back shoppers after Johnson'sfailed experiment in 2012 to go upmarket led to a 25 percentdrop in sales. The company incurred huge losses and spent largeamounts of money on store remodels.

The case is Macy's Inc v Martha Stewart Living OmnimediaInc, 650197/2012, New York State Supreme Court, New York County.

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